AGC survey says supply chain issues biggest block to recovery

By Jenny LescohierMarch 12, 2021

AGC

One year since the onset of the pandemic, an overwhelming majority of contractors say the rising cost of materials and continuing delays in the supply chain are adversely affecting their business, according to a survey conducted by Associated General Contractors of America (AGC).

In response to results of the March 2021 AGC Coronavirus Survey, association officials are urging Congress and the Biden administration to take steps to eliminate tariffs on key materials, address shipping backups and boost funding for new infrastructure to help the industry recovery.

“The survey results make it clear that the construction industry faces a variety of challenges that threaten to leave many firms and workers behind, even as some parts of the economy are recovering or even thriving,” said Ken Simonson, the association’s chief economist. “The pandemic has left the supply chain for a range of key construction components in tatters and undermined demand for a host of private-sector projects.”

Simonson noted that 93% of the survey’s respondents report the pandemic has driven up their costs. Four out of five are spending more on personal protective equipment, sanitizers, and other health-related expenses. More than half say that projects are taking longer than previously.

Costs and delayed deliveries of materials, parts, and supplies are vexing many contractors. Nearly 85% report those costs have increased over the past year. In addition, nearly three-fourths of the firms are currently experiencing project delays and disruptions, mainly due to shortages of materials, equipment or parts.

Nine out of 10 firms that are incurring such delays cite backlogs and shutdowns at domestic producers, such as factories, mills, and fabricators. Half of the firms also blame backlogs or shutdowns at foreign producers.

More than three-fourths of the firms report having projects canceled or postponed in the past year, including more than one out of five with a 2021 project that has been canceled or postponed. Meanwhile, only one-fifth of respondents say they have won new projects or add-ons to existing projects as a result of the pandemic.

In a sign that the pandemic has had very different effects on construction firms, about one-third of firms say business matches or exceeds year-ago levels, while another third say it will take more than six months to reach that mark, and one-fifth say they don’t know.

Respondents in the Northeast are the most pessimistic about the outlook, followed by firms in the South. Firms from the Midwest are split along the same lines as the full survey, while respondents in the West are more optimistic, on balance.

Despite these differences in experience to date and the near-term outlook, contractors from all regions, project types, and firm sizes are almost equally bullish about their hiring expectations over the next 12 months. Across nearly all subgroups, roughly three out of five respondents expect to add employees over the coming 12 months. Only 10% to 15% of firms in any category expect to reduce their headcount.

“Contractors need Washington officials to cut tariffs and address the shipping and supply chain problems that are driving costs and contributing to project delays,” said Brian Turmail, the association’s spokesman. “They also expect the President will keep his word and get significant new infrastructure investments enacted as quickly as possible.”

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